Banks’ instant payment app was doomed when Revolut became a verb in Ireland

In fairness to the Irish banks, they were quick to spot the threat.

Back in 2017, when Revolut, the London-based fintech behind the now ubiquitous instant payments app, had only 30,000 customers, AIB, Bank of Ireland, PTSB, Ulster Bank and KBC Bank Ireland started to look at setting up a joint mobile instant payments service.

Co-ordinated by Banking and Payments Federation Ireland (BPFI), the banks met regularly on what would become known as Project Pegasus, named after the flying white stallion of Greek mythology.

By the Irish telling, however, the creature had been gelded and its wings hacked back to stubs while still a foal.

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News of the first major collaboration between banks since the Laser debit card was introduced in 1996 emerged in early 2021, when the lenders filed with the Competition and Consumer Protection Commission (CCPC) to set up the new joint venture, called Synch Payments.

Ulster Bank had already dropped out by then, as it was known at the time to be considering its future in the Republic.

Synch hit a stumbling block when the authority immediately pushed back at the submission, saying it was unable to work out from the filing whether the planned transaction was a merger or acquisition within the meaning of Irish competition laws.

A refiled effort ended up going through an in-depth scrutiny, resulting in it being put through the wringer before approval in June 2022.

The commission’s main concerns were the risk of co-ordination and sharing of competitively sensitive information between Synch and the banks; the ability and incentive the banks would have to effectively block others from joining; and cash shortfall risks that could arise from the fact that money transfers were instant but settlements of transactions were not.

Indeed, part of the reason why the banks decided to set up the app for pseudo-instant money transfers in the first place was because they were behind the curve in having the technology organised to join the Single European Payment Area (Sepa) instant-settlement payment system.

To appease the CCPC, Synch set out “objective eligibility criteria” for any other financial institutions that wished to become participants, with defined timelines for processing new applications.

It would also have a corporate governance structure, including independent board members, that would allow Synch “to operate with a greater level of independence from its founding shareholders”, the authority said as it approved the plan. The banks also undertook to implement Sepa Instant as a priority.

People involved in the project suggested at that stage that the app – based on technology provided by Italian fintech group Nexis – could be launched before the 2022 busy Christmas shopping season.

But, by then, KBC – which is exiting the Irish market – was already planning to quit the joint venture and there was no shortage of finger-pointing behind the scenes between the banks about their peers’ interest and commitment to the entire project.

Shockingly, the joint venture partners – among the most supervised institutions in the State – had to be told in July by the Central Bank that their plan needed its authorisation.

Synch said in its financial accounts for 2022, published in September, that it was “exploring alternative” options or business models to bring the project to market in order to avoid needing the regulatory nod.

The joint venture company, which had received about €17 million of capital from its owners, conceded on Wednesday it “has reached the difficult decision that it is no longer feasible to launch its payments app” and will cease operations.

The payments landscape has also moved on. Political agreement was reached last week between the European Council and European Parliament on planned rules on instant payments. The regulations are due to be published early next year. Euro zone banks will face the tightest compliance deadlines. A BPFI spokeswoman said Sepa Instant, which seeks to allow consumers and businesses send and receive payments in euro across Europe in less than 10 seconds, is already a “significant priority programme” for Irish banks.

Meanwhile, the European Central Bank’s recent decision to proceed with the next phase of a plan to introduce a digital euro is also destined to further shake up the industry.

Mainstream banks’ payments systems have been among the most neglected areas for investment and development for decades, as there has been little financial return in upgrading the plumbing.

The whole Synch project was a rearguard action by the banks as Revolut and, to a lesser extent, German neobank N26, used instant mobile payments to win customers – and build up a ready base to which they can pitch more lucrative financial products.

In the six years since the banks first huddled together to take on Revolut, the fintech has seen its Irish customer base balloon to more than 2.5 million, or almost half the population of the State – its highest penetration rate in Revolut’s markets in Europe.

Synch was doomed as soon as Revolut became a verb in Ireland.